Last year, if you went shopping for a bargain foreclosed home, chances are you were beat out by investors. Wall Street-backed firms with massive bank accounts were throwing cash at every decent property under $200,000.
With investors buying up so many foreclosed homes, they pushed prices of foreclosures past what they were worth, according to new data from RealtyTrac. For three months last summer, the average foreclosure sold at a premium to its market value. Discounts on bank-owned homes have drifted up again this year to 7 percent in March, as investors have pulled back on their buying according to RealtyTrac.
That’s good news for buyers willing to put in the effort on some renovations in exchange for a deal. After all, that’s the whole point of buying a foreclosure. Making improvements on a foreclosure can make you a tidy profit when you go to sell. Back in 2011, those discounts got as high as 15 percent for bank-owned property listed on the open market, not foreclosures sold at courthouse auctions, those discounts are much steeper. Such values lured investors onto the scene seeking to tap increased rental demand. Over the last year, institutional investors have cut back, though not in all markets.
The best deals tend to be found in places where the number of foreclosures remains high and economies are struggling. Our surrounding areas are not seeing a lot of foreclosures but we are seeing some so be on the watch for them.
The trend toward bigger discounts may reflect the quality of the foreclosures now on the market: The more renovation they require, the higher discount they need to offer to attract buyers. More banks are making repairs themselves before putting them on the market. Nicer properties might not even be listed officially as foreclosures and therefore wouldn’t show up in the numbers. Some Banks would rather fix them up and sell them at a higher price than take the steep discount.
It’s certainly true that the number of foreclosures on the market has declined significantly, to 9.2 percent of sales in April, according to RealtyTrac, though it really does depend on the area. California Foreclosures are way down in hot markets like San Diego and Los Angeles, but in inland California cities like Modesto and Stockton the percentage of sales that are bank-owned top 20 percent. Distressed property may be rarer, but you’re also buying in a housing market that’s improving and growing, so it’s not as risky. The best time to buy a distressed property is in a market more like the one we’re entering right now!
Leading the way in California real estate for more than 100 years, the California Association of Realtors® is one of the largest state trade organizations in the United States with 165,000 members. Your local association of realtors, The Lodi Association of Realtors is 92 years old and is one of the oldest and largest associations in our area. We take our duty to the public earnestly and providing you with up-to-date housing information is our privilege.
Eileen Schamber is the president of the Lodi Association of Realtors and can be reached at firstname.lastname@example.org.